MNI INTERVIEW:German Union Says Pay Should Match CPI Ex-Energy

Hikes to German wages must match inflation stripping out the increase in energy costs, a senior official from one of the country’s biggest industrial unions told MNI, calling government moves to mitigate the effects of soaring fuel and power prices on households insufficient.

More is needed, especially for low and middle-income earners, said Thorben Albrecht, Head of Policy at IG Metall, after Germany’s coalition government announced a three-month tax reduction on fuels on Thursday and relief from soaring utility bills via a one-off payment of EUR300 for taxpayers, in addition to major investment in public transport and one-off payments of EUR100 per child for every family.

“If we can take out the 2.5% that is due to the energy price increases through political countermeasures, then what's left of inflation has to be matched by wage increases,” he said in an interview. “We did not determine a demand for the first negotiation round - it only starts in September - but we're looking carefully at the economic situation.”

Adjusting pay would not necessarily lead to wage-price inflation longer-term, he said.

WAGE PRICE SPIRAL NOT INEVITABLE

“I don't believe that there will necessarily be a spiral, but if there is any kind of spiral it would be a price-wage spiral, because it has been triggered by prices, not by overly-high wage agreements.”

Average inflation is projected to come in as high as 6% this year, after hitting 5.1% in February. Munich-based ifo also cut its 2022 growth forecast from 3.7%in December to between 2.2% and 3.1%, citing the dampening economic effects of Russia’s invasion of Ukraine.

“Industries like the steel and chemical industries will have a problem if there are no political measures to stop the increase of the energy prices. At some point, it's just economically not feasible to produce when energy prices are higher than the money you get to produce,” he said, adding that shortages of raw materials and components are becoming a concern for some companies.

MILITARY SPENDING

Albrecht said plans to raise annual military spending to 2% of GDP, coupled with a one-off boost to Federal defense spending of EUR100 billion, should not lead to cuts elsewhere.

“I am critical as to whether it should be two percentage points, as that would trigger a debate about cutting in other areas where we say it shouldn't be done: social issues, welfare issues, but also public investment.”

Germany also faces setbacks to the green transition of its energy and manufacturing sectors, Albrecht said.

“In the electricity market it’s possible to speed up things, and that would be a good reaction. But the steel industry is more complicated because the technologies needed to change use hydrogen, and at the moment we don’t have hydrogen in sufficient amounts,” he said.

“We can talk about stopping coal earlier,” he said, “but there are some preconditions, and energy prices, energy security, are these kinds of issues. It's now increasingly difficult to fulfill these preconditions.”